I was pacing and crying in the lobby of The Chelsea Hotel in NYC. I lived there during the 90s and on and off in the 00s. This was 2006.
The lobby was known for its bad artwork. For 120 years bad artists and sometimes OK writers would live in the hotel. Sometimes the artists were so poor they would pay with their artworks, some of which were hanging up in the lobby, which gave the lobby a really shitty look since there was a reason these artists had never sold their work.
One time I was going down from my room on the 9th floor and I asked the guy in the elevator with me what was the craziest thing he ever saw in the hotel.
“This girl on our floor was three months behind on her rent,” he said. “So Stanley calls from downstairs and says she has to come down with the rent right now.
“She said, ‘ok, I’ll be right down’. Then she put down the phone and jumped out the window. She landed in the middle of 23rd Street.”
He looked at me, “Come to think of it, she was the last one to live in your room before you moved in.”
But that was then. In 2006, I was the one crying. A bank had offered to buy the business I was running. They were going to pay a lot of money.
“You can’t take it,” my lawyer said.
“But why? I really need this deal.”
“They want you to sign a six year employment agreement and if they ever fire you in the six years they are allowed to unwind the entire deal. The last I heard, slavery was outlawed in the US.”
So we said “no” to the deal.
Not only that, my business partner and I unwound the entire business and shut it down. Our business had failed even though we were profitable. There was just no point in continuing it.
It doesn’t matter how good your business is. If the business is all about you, then you can’t build EQUITY VALUE in the business. People will just want you, not the business. That’s the opposite of freedom.
Freedom is when you can do what YOU need, and not be beholden to whatever everyone else needs.
I solved this problem with my next business, which I wrote about in an earlier article and was able to sell for millions. And right now I am on the board of several companies that are dealing with this issue.
So how do you build equity value as your business grows?
The answer starts in 70,000 BC.
Before 70,000 BC, humans basically sucked. We were in the middle of the food chain. The lion or tiger would capture the prey and eat most of the meat. By the time we could safely feast, we were left with the marrow.
But in 70,000 BC things changed and nobody knows why. Maybe this is when the aliens landed and mated with us. But what changed in 70,000 BC I see in business every day with the companies I’m invested in or on the board of.
Before 70,000 BC humans were in bands of about 30. With 30 people in your tribe you can pretty much know everything about all of the other members of the tribe.
But suddenly there’s evidence that we started forming larger bands of 100-150 people. Suddenly with more people, we could surround other animals and basically kill all of them. Which is what we did (e.g. Neanderthals R.I.P.).
How come we could do this? The best guess is that we developed the cognitive ability to gossip about other people. This means that if A knows B and B knows C then B can say to A, “You can trust C”. So even though there were now more people in the tribe than we could possibly be friends with, we could still have intimate knowledge about everyone in the tribe.
In other words, for the first time in the five million year history of our evolution, two complete strangers could cooperatively work together without knowing each other. They still knew enough information about the other person to work together.
Hence gossip is still one of the most instinctive and primal ways to drive all traffic on the Internet.
I’ve seen this as I’ve grown businesses from 30 employees to 100 employees. Even if I was running the company it was still hard for me to remember everyone’s name and what they did.
But word would get around about who was good and who was bad. And if you use the ability to gossip in a constructive fashion, then you can grow your business to about 150 people. The brain has a hard time if your tribe / business gets to be more than 150.
So what happened next? How do you grow a business to greater than 150 people and know that the strangers you are working with are good and trustworthy?
We became the first and probably only species ever to develop the ability to tell stories. Once you can tell stories then suddenly thousands or even millions can cooperate.
For instance, if I believe in Thor and you believe in Thor then even if we live in other parts of the world and are total strangers we can meet and cooperate, knowing that we have common ground and some basis of trust.
Some examples of stories that have allowed large kingdoms to be built and millions of strangers to work together towards a common cause: Christianity, Hinduism, all forms of nationalism (“The US is the Best!”, Nazism, “Go Yankees!”).
Another example of a powerful story is “money”. I know that with a piece of paper that is constructed in a certain way but has no other real value, I can exchange it for almost anything I want. With that one simple fiction, up to billions of complete strangers can cooperate.
Once we developed story-telling (about 7000 or 8000 BC) societies and civilizations and kingdoms started to develop.
What does this have to do with business?
Companies like Apple, Google, or Coke use stories so that hundreds of thousands of employees spanning the globe can feel proud of the place they work and rally under a common cause. And shareholders can feel comfortable owning a piece of that story. And customers will consume that story in the form of the company’s marketing.
If I’m a worker for Apple in Bangalore I can cooperate with a worker who might be a complete stranger in Cupertino because we know we have a common cause: to make the best-designed products on the cutting edges of phones, computers, tablets, etc. Then if I’m a teenager in Moscow I can buy an iPhone and show my friends how “cool” it is.
The absolute best companies are always built around a vision — a story of what the future looks like.
The leader of that vision weaves a great story, and then the vision goes into reality and delivers on the promise or hope in that story. Google was a vision of the best way to gather and find complex information on the Internet. The story delivered on its promise and is still delivering. The leaders just have to make sure the vision remains intact or evolves.
The leaders can change because they are no longer as important as the story and vision which binds the company’s constituencies together (the true value).
I’m involved with one company that has bought many companies around the world and has over 240 offices. We’re now consolidating everything under one brand to cut costs and reduce inefficiencies. You can’t just cut costs. That would create a horrible culture. What helps is that we are the best at what we do. We tell a story about that.
You build a vision that works. You still have to deliver on that vision. But it starts with a story. “We are the first that…” , “We are the best at…” , “We deliver the best service because…” , “We are the best place to work because…”
Because humans have been evolving for 5 million years and story-telling has been part of our evolution for maybe 12,000 years (an evolutionary blip), stories often break down. We’re not really that good at it yet.
Wars start. Companies fail. Strangers who used to cooperate are no longer able to.
But when you tell a good story, and the story connects with your companies, your shareholders, and your customers, then you build a business that has value outside of you. It becomes its own “nation” or living entity that can survive past your death or past your employment with the company.
This is where real value is built. Where millionaires and even billionaires are created. And where true value is really delivered to customers that know they can trust and rely on your story, even if they don’t know anything about you personally.
I didn’t have a story for that earlier business and that’s why it failed. The company had no vision and the acquirer just wanted to control my freedom.
If you don’t tell your story, someone else will and the result won’t be pleasant. When you write your story, you are free.
So now, if you’re the owner of your business, what’s your story?